On ‘populist steps’, tricky mandate for new Finance Commission 

On ‘populist steps’, tricky mandate for new Finance Commission (Indian Express)

Context

The primary remit of a Finance Commission is to work out the distribution of the net proceeds of taxes between the states and the central government, and the allocation among states

Mandate of 15^th FC

• This Commission has been mandated to recommend a fiscal consolidation roadmap for sound fiscal management, taking into account the responsibility of the central and state governments to adhere to appropriate levels of general and consolidated debt and deficit levels, while fostering higher inclusive growth in the country, guided by the principles of equity, efficiency and transparency
• It will look at the “impact on the fiscal situation of the Union Government of substantially enhanced tax devolution to states following the recommendations of the 14th Finance Commission, coupled with the continuing imperative of the national development programme including New India, 2022”

Test for 15^th FC

This Commission will be tested on how it re-works the record devolution recommended by its predecessor panel

Challenging federalism

• This Commission could get into tricky territory — politically and otherwise — on measurable performance-based incentives for states: say, for expanding and deepening the tax net under GST, boosting tax and non-tax revenues, promoting savings by adopting direct benefit transfers, promoting digital economy, removing layers between the government and beneficiaries, making strides in sanitation, solid waste management and behavioural changes, eliminating losses in the power sector, and improving the ease of doing business
• However, proposing a measurable performance-based incentive on the “control or lack of it in incurring expenditure on populist measures”, is bound to raise questions on whether it challenges the spirit of federalism

Impact

• It would mean defining a “populist scheme”, and whether spending on social welfare by a democratically elected state government can be penalised. It will also lead to questions on the nature of schemes being run by the central government — some of which can be seen as “populist” as well